Smith v. Warr

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Brief Fact Summary.

Plaintiff contracted to buy property from Defendant. The contract provided that special warranty deed was to be passed upon full payment, but before that event occurred, Defendant was sued for adverse possession of the property and lost to the third party adverse possessors.

Synopsis of Rule of Law.

This court held that the measure of damages where the vendor has breached a land sale contract is the market value of the property at the time of the breach less the contract price to the vendee.

Facts.

Plaintiff, a buyer of property according to Uniform Real Estate Contracts, contracted to buy property from Defendant. The contract provided that special warranty deed was to be passed upon full payment, but before that event occurred, Defendant seller was sued for adverse possession of the property in question, which Defendant lost to the third party adverse possessors. Plaintiff was thereafter awarded damages of only out-of-pocket loss and both attorneys’ fees and costs were denied. The Plaintiff is appealing, claiming that the lower court erred by not awarding benefit of the bargain damages (which is the market value of the property at the time of breach less the amount of unpaid purchase money, where some of the purchase money had been paid.)

Issue.

Is the buyer entitled to benefit of the bargain damages due to the seller’s breach?

Held.

Yes. Judgment reversed.
The court began by noting that there is a split of authority as to which measure of damages is appropriate for a breach of contract for the sale of land. Some states award benefit of the bargain damages only if the breach was committed in bad faith. Others consistently award benefit of the bargain damages whether or not the breaching party had good faith cause for failing to convey.
The seller here contends that Utah has not specifically adopted one or the other rules, but that the lower court found that the seller acted in good faith, and that should place this case in the category of cases requiring proof of bad faith in order to recover benefit of the bargain damages for a seller’s breach.
This court held that the measure of damages where the vendor has breached a land sale contract is the market value of the property at the time of the breach less the contract price to the vendee.
The rule followed by Utah is that benefit of the bargain damages are to be awarded for breach of contract for the sale of real estate, regardless of the good faith of the party in breach.

Discussion.

As the court points out that there is a split of authority on this question, one must be careful to determine the rule of the jurisdiction should a similar case ever arise. The rule announced by this court is rather broad and would apparently apply against a buyer as well as a seller.